December 1, 2010

Some Holiday Gift Giving —DeWese

EBITDA's Role in Determining What Your Company's Worth

How printing companies are valued is not only misunderstood among owners, but can also be a source of gut-wrenching angst. I have represented selling shareholders in more than 150 transactions over a 24-year period. In the late 1990s, times were good and the majority of printing companies in all segments, save perhaps forms printing, were profitable and had positive EBITDA. EBITDA is defined as Earnings, Before Interest, Taxes, Depreciation and Amortization.

If, for example, your privately held company has earnings of $1.0 million, interest of $.2 million, taxes of $.2 million and depreciation of $.3 million, then its EBITDA equals $1.7 million. If your revenues equal $17 million, then your EBITDA margin is 10 percent. Back in the 1990s, a buyer might have been willing to pay you five times EBITDA. The five times multiple is called an EBITDA multiple and your company Enterprise Value would have been five times $1.7 million, or $8.5 million.

Publicly traded printing companies, like Consolidated Graphics and RR Donnelley, are traded on the New York Stock Exchange, the American Exchange or NASDAQ. These public companies (listed on page 16 in this issue) also have EBITDA multiples, which are now shown in the last column of the chart. Public companies cannot pay a multiple in excess of their multiple or the acquisition will not be accretive to their earnings. As an example, a public company with a multiple of four cannot pay a multiple of five for your company, or the transaction will be dilutive and could reduce the buyer's stock price.

If you still think that a buyer should pay you five times EBITDA for your company, and don't understand what is written above, Google "EBITDA Multiples" for further explanation.

All of my PhD candidates are on holiday vacation. I have been conducting a Doctoral program for graphic arts sales professionals to earn PhDs in print sales and marketing.

I scheduled a 30-day holiday break so my students could party, shop and celebrate with their families. Depending on their religious affiliations, they have trees to decorate, candles to light and carols to sing. Some of them might, I said "might," even try and sell some printing.

I love this time of year because my mailbox is stuffed with lots of printed material. Good stuff like catalogs from Land's End, Tattoo World, Column Writers' Fashions and Victoria's Secret. All of the Christmas-related, printed material warms my heart. It's refreshing after being forced to watch all those TV political cartoons—er, I meant to say political "commercials" where I learned absolutely nothing about why any candidate deserved my vote. The candidates spent $3 billion on lousy 30-second TV spots, which should have been spent on print to actually communicate their platforms. I know...you're thinking, "Most of the American public only has a 30-second attention span and would never read a few printed pages."

I usually try to use my December column as a way to deliver a gift to readers. Oh, it would've been easy to buy 250,000 quarts of Wild Turkey or Jack Daniels Black this year. But then I discovered that some of you are teetotalers and it's illegal to ship booze into some states. I actually considered sending you non-drinkers expensive bottles of perfume or cologne. But then I learned that Ralph Lauren's Notorious is priced at $3,540. So, I decided that gifts I could make would mean more to you than some outrageously expensive department store fragrance.

All the Colors of Crayola

When I was a kid and whined about having too little money to buy Christmas gifts, my dear mother would say, "Harris, homemade gifts mean more than any ol' store-bought stuff." She was a Midwest farm girl, and that's the way my mom talked. Hence, I would get out my crayon box and create artwork for my grandparents, sister and parents.

Back then there were only eight Crayola colors, so my palette was somewhat limited. My creations were usually beautiful landscapes featuring trees, flowers, grass, clouds, Mr. Sun and Mrs. Moon. Sometimes I would also include my dog, Parson, in the picture—usually sleeping under a tree.

Okay, I'm ready. So pay attention. My crayon box is at my side and I'm inviting you to gather round while I deliver your gifts.

Some of you call me.

Others write to me (actual letters).

Still others send an e-mail.

Many readers, nowadays, send text messages.

As a result, I know a lot about many of you, which enables me to customize these gifts. By the way, I don't think this has ever been done before. It's unprecedented that a writer is delivering homemade Christmas gifts to his readers, right in the pages of his column, in a printed magazine. Next year, maybe I'll send cookies.

My first beautifully wrapped gift is for Marvelle Stump down in Hot Coffee, Mississippi. Marvelle has trouble remembering the benefits associated with buying printing at his company, Mississippi Color Litho.

Here's your gift Marvelle. It involves some work on your part. That's spelled W-O-R-K.

1. Walk back in the plant and ask every worker how your customers benefit by buying their printing at Mississippi Color.

2. Write down every word of every answer.

3. Then do the same thing up in the front office. Ask everyone, "How do our customers benefit by printing here?"

4. Ask your owner and the other salespeople.

5. This next step will be hard for you. Swallow hard and call a few customers, if you have any. Ask them why they like printing at Mississippi Color. Write down every single word. You should have several pages by now.

6. Now, find a PC that you can use and carefully type out every answer. Print the answers and circulate the list to your fellow salespeople and the owner. Ask them to edit or add their thoughts to your list.

It's Not the Recession

All of this work should have made you an expert on the benefits associated with printing at Mississippi Color. The more you work at improving the benefits list, the better you will be when meeting with prospects and existing customers. You will find your attention to the benefits of doing business with your company will pay off with more new clients and more sales to existing customers.

The next gift goes to Lance O'Brien at Manhattan SuperLithoGrafix in New York. Lance, people find you to be arrogant, self-centered, pretentious and generally phony—wait it's more than just phony. People think you are flat out obnoxious!

Lance, being obnoxious is a huge deterrent to selling. So, your gift is an all-expense paid Internet trip to www.DrPhil.com. Dr. Phil employs 12 psychiatrists around the clock. This is true. You ask a question, the expert gives you an answer, er, for a price. In your case Lance, the price was $22.00. That's right. They are able to hear your problem and instantly estimate the cost for a cure.

Actually, I pretended to be you and asked how I could recognize and then overcome arrogance, officiousness, self-absorption and a generally all-around-phony personality. The price I was quoted was literally $22.00, which my psychiatrist would conveniently charge to a credit card. I didn't pay. I'll leave that to you, if you have a valid credit card. If you don't have a card that is usable, then see if Marvin Ledbetter, your owner, will pay $22.00 to get your head screwed on straight.

Lance, most print buyers and the majority of your co-workers despise your behavior. It's no wonder you have not sold a single new client this year, and your sales to existing customers are 50 percent under 2009. It's not the recession Lance. It's you. Please accept my gift of a trip to Dr. Phil, so you can get yourself squared away.

I am also sending an elegantly wrapped box out to Nadine Treadway at San Diego ColorArt. You didn't capture a single new account in 2010. In fact, I learned you haven't sold a new account since 2003.

I checked up on you Nadine, and learned that you come to work every day fired up and ready to prospect. But, after three or four phone calls you become discouraged and open the newspaper to the crossword puzzle. You are good at crosswords and usually finish the day's puzzle by lunchtime, that is unless some existing customer calls you to inquire about the status of his job.

Nadine, your gift is a prospecting plan. First you need a list of qualified prospects. I could write a book about this subject alone. Your list of prospects should contain print buyers who purchase printing that fits your plant.

If you work for a small, half-size sheetfed or digital equipment company, then you want to include print buyers who purchase work suited to your equipment mix. Or, if your company runs full-size heatset web presses, then your list should include print buyers who buy medium- to long-run magazines or catalogs. In fact, your prospect database should contain a dossier of information about the prospect and his/her company that far transcends name, addresses and phone number.

I'm out of space here, and would need pages and pages to give Nadine a prospecting plan. So—I'm gonna hate myself for this—if you e-mail me, I'll send you the steps to take to develop a prospecting plan.

If you implement the plan just so-so, I will guarantee you'll improve your sales 10 percent to 15 percent. If you do a good job implementing the plan, then the sky is the limit. My new e-mail address is hmdewese@aol.com, so send your address and I'll send you the plan.

If you didn't get a holiday gift, you need to be better boys and girls during 2011, and I'll send you something real good next year. Meanwhile, get out there and sell something! PI

—Harris DeWese

About the Author
Harris DeWese is the author of "Now Get Out There and Sell Something" and "The Mañana Man, Books II and III," available at www.piworld.com/bookstore. He is chairman of Compass Capital Partners and also authors the annual "Compass Report." DeWese has completed more than 150 printing company transactions and is viewed as the industry's preeminent deal maker. He can be reached via e-mail at hmdewese@aol.com.

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